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Call for zero UK interest rate after Fed's dramatic cut
Hugo Duncan17.12.08
PRESSURE is mounting on the Bank of England to reduce interest rates to zero after unprecedented action in the US.
The US Federal Reserve slashed its key interest rate from one per cent to a range between zero and 0.25 per cent last night in a drastic attempt to stop recession plunging into depression.
And it warned that "the outlook for economic activity has weakened further".
The Fed also predicted US rates would stay at the current record low "for some time" and outlined plans to pump billions of dollars into the economy as it ran out of space to make further cuts. The move in Washington prompted calls on this side of the Atlantic for the UK to follow suit and cut rates aggressively in the coming months.
The Bank of England has slashed rates from five per cent to two per cent since October and looks set to take further action next month.
City experts are expecting a cut to anywhere between 1.5 per cent and one per cent in January and down to between zero and 0.5 per cent by next summer.
Interest rates in the UK have not been below two per cent since the Bank of England was set up in 1694. But politicians, unions and economists are calling for unprecedented action to cope with the crisis.
The first new 95 per cent mortgage to be offered in months has been unveiled by Nationwide. However, the loan has a punitive interest rate of 7.18 per cent, more than three-and-a-half times the base rate, and is not available to first-time buyers.
Reader views (8)
If the interest rates drop to zero, the pound will be worth 50% of a Euro.
- Stan White, leeds
Better to wait a while before another panic move, and see what happens. Savers and the pound have been punished enough. We're not far off printing money like the US, sorry I mean "quantitative easing". Banks are still not behaving eg HSBC lending to incompetent hedge funds.
- Ian, Sheffield
We need higher interest rates to reward savers & reduce the cost of imports to stave off the ramant inflation which will necessarily follow the debacle caused by Brown & co.
- Roger Slade, Winchester, Hampshire, England
This lot in charge will allow zero interest, knowing savers will have to use their money they have worked all their life for. Pensioners who have savings will be hard hit. But hang on savers be as strong as you can for now, as the mortgage owners rub their hands today. It's gonna be misery for them tommorow, when this lot in charge start making this country pay larger taxes. And interest rates start to climb it's gonna happen. Or banks won't survive without savers money. The other thing to do is take out your cash and stash it somewhere, why should the baks use it they will be screaming for youe money then.
- Ebin Donk, uk
What savings I still have will be reoved from the Bank and Government's grasp.
I'm not paying for the profligate any more !
- Cap, london
The 'fed' did this because they are headless chickens in a blind panic. Now the call is for us to follow them. After Iraq and sub-prime mortgages we should know better!
- Michael, London
Although the notion of an interest rate cut has benefits to many, a concern of mine and those whom I spoken with is how does this really benefit those wo are trying to move mortgages, some are now in negative equity and although they continue to pay their mortgage and have a good degree of security in their job role, the banks by refusing to allow mortgages like this make it hard to hard to move thus preventing additional money from flowing either into the economy or back into banks for saving. Maybe if the government did a little bit more to help in this way they could help solve a few more of these problems just that little bit quicker. Just because a person is in negative equity does not mean they are bad for credit just merely the one's who are unfairly suffering because of the actions of others!
- Darrell Murphy, London
If the BoE slashes interest rates any further, will we savers have to pay the bank interest to keep our savings accounts open?
- Phil Jones, London UK
